Become the person with the planThis is part of a series, co-authored by Ron
Sturgeon and Greg Morse, founder and president of Worthington
National Bank.

by Ron Sturgeon

Ron: I guess we can overstate the obvious
and say the first thing bankers don’t want to see is a business
plan written on a big yellow pad with a No. 2 pencil.

Greg: True, but at the same time I want to
know that the person whom I’m dealing with wrote the plan and
understands it.

Ron: So as a banker, what are you looking
for in the business plan?

Greg: The first thing I want to know is what
you do, and how you do it better than other people.

Ron: I call that a Unique Selling Proposition
(USP). When someone tells me they have an idea for a business,
one of the first things I ask is, “What’s your USP?” And they’ll
start talking about how their service is going to be better or
they’re going to have a bigger commitment to quality.

What they don’t understand is that those
are features and they’re not unique! I’m not saying that having
the best service is a bad USP, but I want them to tell me what
makes their service better. Good examples of USPs might include:

•Our machine does something the competing
machine doesn’t do (that’s the feature), and that translates
into a third less operating expense (that’s the benefit).

•We are going to offer better customer service
(a feature). We will accomplish that by making sure that the
widgets the client requests will actually fill his need (a benefit);
our competitors just sell the client what he asks for with no
questions asked.

•Our delivery is faster and more accurate
(a feature). We accomplish that by using RFID tags attached to
the merchandise throughout the distribution process.

Greg: A lot of times, people think being
the lowest-cost provider is their benefit. But when they say
that, it’s almost always automatic that I’m not making that loan.

Ron: You almost never want to be the low-cost
provider.

Greg: No, you don’t! People don’t realize
that if they under-price their competitors, they’re the ones
who are going to go away, not their competition. No one wins
in a price war. You have to have some kind of benefit that customers
are willing to pay a little bit more for.

Ron: So, from a banker’s standpoint, what
else do you want to see? You’re expecting their business plan
to include what they do, a little bit about their background
and their successes – but not too much. They need to make it
succinct. Would you say that’s correct?

Greg: Yeah, and I want to know that they
have experience doing what they want to do. If they don’t, they
need to have a partner that does. The business plan they give
me should basically be their loan write-up. It should give the
banker enough information to go in front of the loan committee
and say, here’s why they need the money. And more importantly,
here’s how they’re going to pay it back. I need to know about
your background, I need to know good things about you and I need
to know if I’m going to read something bad about you in the paper
tomorrow morning.

Ron: Yes, the days of lending on “ideas”
are over. Experience and a track record of success is imperative.
About the business plan, on the other hand, you don’t want too
much information.

A business plan should be as succinct as
possible, but it should also be as complete as possible. It should
have the math – the pro forma math for at least three years and
maybe as many as five. If this is an existing business and there’s
a history, it should have some math from that. The banker wants
to see how the cash flows, and it should include information
about the people, their education, their experience, their product
or service and the company.

It needs to have an overview of what they’re
planning to do and how they’re going to use the money.

The value of the collateral is seen as the
weakest source of repayment, because it’s almost always impaired
at the time of repossession or foreclosure, so make sure there
are other sources of repayment rooted in cash.

I think you always need to include an executive
summary that isn’t any longer than four pages and has some excerpts
from the math, like charts with the top line and bottom line
– a condensed version of the full-blown business plan. That would
be my idea of what a banker wants to see.

Greg: We also want to see an outline that
has the business description, the name of the business, location,
a description of products or services, and management expertise.
Then it should go into their own business history. How long have
they been in business? What does the ownership look like, and
what makes them qualified to run this business? And finally,
you need to define your business goals and give a financial summary.

Ron Sturgeon is past owner of AAA
Small Car World. In 1999, he sold his six Texas locations, with
140 employees, to Greenleaf. In 2001, he founded North Texas
Insurance Auction, which he sold to Copart in 2002. In 2002,
his book “Salvaging Millions” was published to help
small business owners achieve significant success, and was recently
reprinted. In June 2003, he joined the new ownership and management
team of GreenLeaf. He also manages his real estate holdings and
investments. You can learn more about him at WWW.autosalvageconsultant.com
He can be reached at 5940 Eden, Haltom City, TX 76117, rons@rdsinvestments.com or
817-834-3625 ext 6#.